[JAKARTA] RESOURCE-rich Indonesia is set to launch its first two state-owned bullion banks on Feb 26, as it aims to step up its game in the precious metal space.
Coordinating Minister for Economic Affairs Airlangga Hartarto said on Tuesday (Feb 18) that the setting up of these bullion banks is a crucial part of Indonesia’s strategy to move up the commodities value chain.
Indonesia is South-east Asia’s largest gold producer, with an annual output of 110,000 tonnes.
The two banks appointed to run the bullion banks are Pegadaian, a state-owned pawnshop chain and subsidiary of Bank Rakyat Indonesia (BRI), and Bank Syariah Indonesia (BSI), the country’s largest Islamic lender.
These institutions will facilitate gold trading and provide related banking services, reducing Indonesia’s reliance on foreign financial institutions and improving liquidity in the domestic market.
Hartarto said that establishing an onshore bullion bank would eliminate the need to import gold products after overseas certification. It would also stimulate the growth of the local industry by expanding financing opportunities, and enable the central bank to utilise gold instruments to maintain economic stability.
A NEWSLETTER FOR YOU
Friday, 8.30 am
Asean Business
Business insights centering on South-east Asia’s fast-growing economies.
“Previously, much of the value was captured in Spain and Japan. So this bank will create a more self-sustaining ecosystem that extends all the way to the downstream sector,” he said.
He highlighted that one of the key applications of the bullion bank is to support haj savings.
Many Indonesians wait seven to 10 years to go on their pilgrimage, during which time the value of their savings can be eroded by inflation.
“By saving in gold rather than cash, their funds will better keep pace with rising haj costs, ensuring greater financial security,” he said.
Currently, Indonesia exports much of its gold to trading hubs such as Switzerland and Hong Kong, where it typically transits as a commodity; it is not used domestically. Last year, the country shipped approximately 2,400 tonnes of gold and jewellery, valued at US$3.27 billion.
The push to establish a bullion bank is a key part of resource-rich Indonesia’s broader ambition to ascend the commodities value chain under President Prabowo Subianto.
This effort picks up where previous administrations left off, in that copper and nickel miners were required to invest in domestic refining.
At the heart of this production is the Grasberg mine in Papua, operated by Freeport Indonesia, which boasts one of the world’s largest gold reserves.
With the launch of Freeport’s new refining facility, the country’s gold output is projected to increase by an additional 50 to 60 metric tons annually.